The economic axiom

Charles Krauthammer of The Washington Post questioned, in an article, the old axiom that economic liberalization leads to democracy. I think it eventually does.

The idea that economic freedom leads to democracy first found life in the U.S., before it was the U.S. The axiom started in New Amsterdam, which is now New York. It was the governor of the then Dutch colony, Peter Stuyvesant, who, in the early 17th century, made economic activity the institution of freedom it is today. He made economic activity the religion of America, as a way to neutralize the religious divisions that existed in those days. Up to that point religious differences were constraining people’s freedoms, mainly because of the imposition of the founding religion, the Quakers, on the other religions. The removal of such a barrier unleashed economic activity and gave people a freedom they never had before. This newfound freedom gave people a voice, which later translated into political freedom. This too was the birth of religious freedom and the secular state America is today. And as most of us know, without secularism real democracy is not possible.

It is not so much that Stuyvesant was aware that religion and religious feuding was constraining economic development in the New World. Perhaps at the time it wasn’t. Nevertheless, in his wisdom, and that of his employer, the Dutch East Indies Company, he used economics activity to muzzle religious fervor. Religious tolerance is something he had learned in the old country, the Netherlands, which at the time was the most advanced and tolerant nation in Europe. He picked economics to be the religion of the New World, as the common denominator all could subscribe to. There was no alternative.

Krauthammer questions this axiom because economic liberalization has not helped in democratizing China and Russian, two countries which otherwise have pretty healthy economic activity. People in those two countries are essentially free to own property, consume what they want and be mobile. However, the problem is that other institutions, which help turn economic freedom into political freedom, have either not developed or have not kept pace. For instance, the freedom of the press that holds governments accountable and at arms length has not developed sufficiently enough. Neither have the laws that protect individual rights; people there have little or no recourse if treated unfairly economically or politically. Also, there still isn't the feeling of freedom among the people of those nations. They have to learn how to feel free because it is something they are not used to, because they have been denied it for a long time.

Krauthammer mentioned that America and its allies were successful in instilling democracy in Germany, Japan and South Korea. He is making a comparison here, to Iraq, Afghanistan and Pakistan, where U.S. influence has had little impact in encouraging the development of democracy. But he doesn't stop to think that democracy took hold in those countries precisely because they were first industrial nations. Workers in those nations had a stake in the industrialization of those nations and participated directly in it. They developed unions and similar institution that counterbalance and challenged governments. In time the citizens of those countries leveraged that participation into more individual rights. Industrialization in those countries gave people a voice and the leverage because without them industrialization could not have continued. Industrialization also created wealth for these workers which in tern they invested in property, further enhancing their stake in their countries and their prospects for more democracy.

It is interesting, though, how capitalism and the freedom of individual economic activity have taken hold in Russia and China in comparison to the Muslim world. The economic dynamics are totally different. I think the difference has to do with what happen under communism in those two countries. Communism discouraged and band religion. When communism collapsed religion did not exist as a hindrance to individual economic activity as it has done in the Muslim world. In Russian and China men and women equally participate in economics. In creating secular states communism readied countries for individual economic participation, which one day will lead to political emancipate.

Arthur Schlesinger Jr. made this cleaver observation: "Democracy is impossible without private ownership because private property - resources beyond the arbitrary reach of the state - provides the only secure basis for political opposition and intellectual freedom."

I think that observation, with what occurred in Germany, Japan and South Korea provides ample evidence to the axiom that economic liberalization eventually leads to democracy. Democratization is slowly occurring in Russia and China because people there are becoming wealthier and individual property owners.